If you search “how big should my emergency fund be?” you’ll find a lot of different answers. Everything from “you don’t need one” to “a full year’s worth of expenses.”
There isn’t a single right answer and just having an emergency fund is far more important than deciding exactly how much it should contain.
At BrightDime, we start everyone with the goal of saving $500 in cash. We call this your “rainy day fund.”
Using $500 as a goal is a great start because it’s an attainable amount to save within a reasonable time frame if you are starting from scratch. Once you have $500 saved, then it’s a lot easier to keep adding to that fund over time as you build the habit of saving for emergency situations.
Once you have your first $500, congratulations! You’ve completed one of your BrightDime goals!
With the rainy day fund taken care of, it’s time to move on to your emergency fund. We agree with many experts that recommend the range of three to six months of basic expenses for a true emergency fund. If you lose your job, it will let you look for the right new one without having to take the first thing available because you’ve got bills to pay. If you get hit with a major, unexpected expense an emergency fund will let you take care of it without resorting to credit cards and their 20% (and up) interest charges that make that unexpected expense even more expensive.
If you’re in a really stable situation and have your budget running smoothly, three months of expenses might be right for you. If you’ve found yourself in longer periods of unemployment, or have extenuating circumstances like large health expenses, you may want to aim towards six months or more of expenses saved.
Your peace of mind is the biggest benefit of having an available emergency fund. While there isn’t a one-size-fits-all approach to how much it should be, our BrightDime coaches can help you assess your personal situation and recommend how much and where to start saving. Head to the dashboard and start a chat today!